What is Budgeting?

What is Budgeting?

Budgeting is the process of outlining the estimated income and expenses over a specific period. The process involves planning, organizing, and controlling the financial resources of an organisation or an individual to achieve specific goals within a defined period. The objective of budgeting is to guide in making financial decisions and to ensure that available resources are used efficiently and effectively. It helps to navigate the financial performance and stability of the business and encourages to work towards achieving an end goal....

Purpose of Budgeting

1. Allocation of Resources: Budgeting ensures that individuals and entities allocate their resources efficiently by utilizing their income wisely to meet financial objectives....

Importance of Budgeting

1. Setting of Goals: Budgeting involves planning. It serves as a roadmap to achieve the end goal of an individual or an entity. It prioritizes the objectives and provides a strategy to allocate the available resources accordingly. A goal can be to expand the business, save, generate more revenue, etc....

Types of Budgets

1. Operational Budget: An operational budget states the expected income and losses of a business over a specific period, generally a fiscal year. Its purpose is to focus on the core business activities. Operational budgets are used to predict the revenue and expenses of the business. A business can plan the strategy accordingly based on the operational budget....

Budgeting Process

The process of budgeting includes the following steps:...

Budgeting Strategy

1. Setting Clear Goals: The purpose of creating a budget is to meet financial goals, such as savings goals, and generate revenue now and into the future. Having clear objectives provides direction for your budget. It is one of the most important phases in this process....

Difference Between Static Budgets and Flexible Budgets

Basis Static Budgets Flexible Budgets Nature Static budgets are those budgets that remain intact or unchanged during a fiscal year. A Flexible budget is a budget that changes according to the level of activity or business conditions. Adaptability Static budgets are not adaptable to changes in business conditions. Sometimes, they become less relevant for decision-making Flexible budgets are adaptable to changes in production, sales, or other departments. They are useful in decision-making. Application These budgets are useful in a business where the business conditions are stable and are not affected by external changes. These are particularly useful in industries where activity levels may change due to various factors. Usage Static budgets are used for performance evaluation by comparing actual performance with the budget. Flexible budgets allow for a better understanding of the impact of volume changes on costs....

Budgeting – FAQs

What are fixed and variable expenses in a budget?...